NOT WHAT YOU THINK

EB-5 visas attract foreign investment and create US jobs; the program needs reform, not the chopping block

Obsession
Future of Finance
Obsession
Future of Finance

We sell citizenship to wealthy foreigners? That was the question on many minds this past weekend after reading news of Jared Kushner’s sister in China touting a US government program to investors there that allows them to earn a special visa in exchange for putting a half a million dollars into an American business. In this case it was a large real estate project by Kushner Companies. The Kushner family later issued an apology for using Jared Kushner’s name and seeming to imply a connection to the White House. And his sister has dropped out of further presentations to Chinese investors.

Even without that, on its own the investor program—called the immigrant investor program, or EB-5—seems salacious, even scandalous. In actuality, it may soon shut down, and that would be a shame because what few know is it’s a massive jobs program that comes at virtually no cost to taxpayers.

The EB-5 immigrant investor program grants residency to foreigners who invest $500,000 to $1 million in ventures that create at least 10 permanent jobs. The Department of Commerce reported in 2012 and 2013 these immigrants generated $5.4 billion in investments and created 174,000 jobs. That’s 4.3% of US job growth during that time. Taking the government’s numbers starting at 2012 and doing the math up to 2016 finds these investors could be creating about 805,000 jobs, or 8.2% of US job growth over that period.

Under Barack Obama, Bill Clinton and two Bush presidencies—EB-5 started in 1990—the program has been a jobs engine fueling a long list of infrastructure and development projects and adds nothing to the annual budget deficit. Builders will tell you the financial crisis was a shining moment for EB-5. Banks shut their doors and the immigrant investor program was one of the few capital lifelines left.

Now, within months or sooner it could die. After a fight in Congress last week over how to update the program, lawmakers threw up their hands and appeared to extend it, as is, to September. But what appeared to outsiders to be a reprieve will be a death sentence with new immigration rules coming any time now that are expected to dramatically raise how much immigrants need to invest to participate.

The government’s logic, spelled out in the EB-5 Immigrant Investor Program Modernization proposal in January, is the required investment amounts haven’t changed since the program’s inception, and the hike keeps up with inflation. But immigration experts say increasing from $500,000 to $1.4 million for investments into specially designated areas and from $1 million to $1.8 million in others will be too much of a shock. The job-linked dollars will come to an end. Some insiders claim in private that’s the objective, to force compromise out of industry groups who have resisted changes. The comment period for the rule ended last month and the change could come anytime.

To head off the ax with new lawmaking, Congress would need to agree on antifraud integrity measures common in other areas of investing—measures like third party fund management and transparency. Investments would need to get to rural areas like those represented by senators Chuck Grassley and Patrick Leahy who have insisted on reforms and don’t like instances of fraud like a notorious Jay Peak scandal in senator Leahy’s Vermont. Backlogs at US Citizenship and Immigration Services would have to be solved—likely with higher fees for investors.

That all seems workable. And it’s not even partisanship that seems to be holding it up. Grassley and Leahy are a Republican and Democrat respectively. Two senators who are seen as the standard-bearers for urban areas whose constituents are worried about the changes Grassley and Leahy want are Republican John Cornyn and Democrat Chuck Schumer. Beyond the rural versus urban divide, Grassley and Leahy have pointed the finger at the real estate industry and accused them of trying to out maneuver reform. Something more insidious than partisanship seems to be at play—a fundamental inability to compromise.

Americans may have been shocked by the idea of EB-5 when they heard about it in headlines about Kushner Companies in China. But if they understood what EB-5 has given us, its potential loss would be frightening and Congress’ inability to save it a bad omen for thornier issues to come.

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